PHP is a server-side scripting language used for web development that allows dynamic content on websites. It runs on a web server and processes scripts embedded in HTML files before returning plain HTML to browsers. When a browser requests a PHP file, the PHP script is executed on the server and generates HTML which is then sent to the browser. XAMPP and WAMP are local development environments that allow testing PHP scripts without an external server by emulating the Apache web server, MySQL database, and PHP runtime environment on a local computer.